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As New York City’s commercial tenants continue to cease operating, break leases, or disclaim their rental obligations, residential cooperatives are having to compensate for that slack by way of “special assessments” passed on to all shareholders.

But those additional charges may be difficult to swallow, as many residential tenants are also experiencing financial difficulty thanks to the pandemic. Some have been asking, “Am I required to pay these charges?” And the answer is, "likely, yes."

Virtually all co-ops have governing documents which allow boards to levy special fees, at their discretion. So any 2020 assessments designed to bridge any COVID related gaps are nearly impossible to dispute. The only real recourse would be to run for a board seat, in an attempt to oust the existing board members. But even if successful, new officers will likely find themselves in the same financial quagmire as that of their predecessors.

For those shareholders living in “mixed use” co-ops, their commercial tenants have been given a bit of leeway this year. Executive Orders freezing commercial evictions have placed a heavy burden on boards who have lost large portions of their income stream (used for building operating expenses) for months on end. And with those businesses declaring bankruptcy, the latter are often able to just simply handover the keys over and prematurely end their tenancies, with boards, in most of those cases, unable to recoup any past rent or other lease related consideration.

Even commercial tenants who are adhering to their contractual obligations have been holding their landlords’ feet to the fire. Gerard Picaso, senior managing director at Halstead Management, has realized the need for creative renegotiation of lease terms to keep the commercial money flowing: “Commercial tenants are saying to you, ‘Look, I can go across the street to the empty store there. They are asking 30% less than what I’m paying now’... It’s a very unstable market.” That isn’t to say that commercial tenants aren’t getting slammed financially, but it sheds further light on the fact that everyone is hurting in their own unique way.

In order to reach a deal, some boards have been offering rent relief for the “down months” when commercial tenants were unable to operate due to COVID restrictions. In return, buildings are asking tenants to extend their lease terms or to provide additional security reserves in order to stabilize any further fluctuations that may be looming, like a second wave of COVID – and with it, more governmental shutdowns. (As parts of Europe are now experiencing.) Other boards have also resourcefully entered into agreements with neighboring commercial tenants -- namely restaurants -- to allow them to occupy more sidewalk space, thereby generating an extra trickle of cash each month.

Interestingly, some boards have found themselves relatively unscathed, as healthy reserve funds and active lines of credit have allowed them to waive the need for increased maintenance fees or assessments. Michael Mintz, found and CEO of MD Squared Property Group – a New York based property management company for co-ops, condos, and rentals -- noted “[Our buildings] have the cash to carry themselves through.” Buildings with deep pockets have their limits as well, though. “If this goes through to the beginning or middle of next year, Mintz added, “we’ll be in a much worse place.”


If you are a cooperative tenant experiencing an issue with your building, or neighbors, please do not hesitate to reach out to one of our real-estate attorneys at 212-619-5400.


To view the source of this story, please visit: https://www.habitatmag.com/Publication-Content/COVID-19/2020/2020-October/When-a-Co-op-s-Commercial-Tenant-Suffers-Everything-Is-on-the-Table